HF 


GIFT  OF 


GIFT 
FEB    14   1918 


The  Meaning  of 
Business 


— OR- 


The  Science  of  Service 


Published  by 

TLe  American  Credit-Indemnity  Co. 
of  New  York 

With  the  permission  of  the  Author. 


Copyrighted  1918 

by 

The  American  Credit-Indemnity  Co 
of  New  York 


The  Meaning  of 
Business 


-OR- 


Tlie  Science  or  Service 


Published  by 

The  American  Credit  -Indemnity JCo. 
of  New  York 

With  the  permiMion  at  the  Author. 


THE  ESSAY  BEGINS  ON  PAGE  9 

Economics,  or  Political  Economy,  is  viewed  generally 
as  a  dull  and  ponderous  subject,  except  by  Professors. 
The  reason  doubtless  is,  that  some  Political  Economists 
seem  to  have  the  notion  that  they  are  writing  always  to 
other  Political  Economists,  and  thus  sacrifice  simplicity 
and  clearness  for  "scientific  analyses/' 

Political  Economy  is  a  very  simple  exposition  of 
Successful  or  Scientific  Service,  following  causes  to  their 
effects  upon  the  pursuit  of  wealth. 

As  efficiency  of  service  is  the  measure  of  success,  and 
as  this  Essay  on  the  Meaning  of  Business,  or  The  Science 
of  Service,  tells  so  simply  what  efficiency  is,  we  publish 
it  for  complimentary  distribution. 

It  was  written  by  a  man  of  rare  attainments,  who  has 
had  an  unusually  successful  career. 

We  feel  confident  you  will  find  pleasure  and  profit  in 
reading  it.  Additional  copies  may  be  had,  upon  request, 
although  only  a  limited  supply  has  been  printed. 

THE  AMERICAN  CREDIT-INDEMNITY  CO. 

Of  New  York  E.  M.  TREAT,  President 

CREDIT  INSURANCE 

HOME  OFFICE  ST.  LOUIS,  MO. 

1918 


371342 


People  must  hate  sense  enough  to  understand  what  they 
do  and  why  they  do  it. 


The  man  who  understands  that  he  must  serve  in  order  to 
thrice  will  know  what  to  do  and  what  not  to  do. 


To  do  an  unuseful  thing  is  to  fail;  to  do  a  useful  thing  is 
to  thrive. 


Do  what  the  community  needs  to  have  done. 


A  man  makes  what  he  sells  and  buys  what  he  needs.    The 
wise  thing  to  do  is  to  make,  in  abundance^  what  people  need. 


No  man  can  help  himself  without  helping  others. 


Business  is  a  profitable  beneficence. 


CREDIT  INSURANCE. 

ITS  SERVICE  TO  BUSINESS. 

|HE  object  of  the  writer  of  this  pamphlet  was  to 
show  that  men  thrive  by  mutual  service  and  not 
by  mutual  spoliation.  He  justifies  the  prosperity 
of  those  engaged  in  making  or  distributing  goods 
by  showing  the  contribution  of  each  to  the  general  welfare. 
The  American  Credit- Indemnity  Company  accepts  the 
challenge  conveyed  by  his  argument  and  offers  for  the 
consideration  of  business  men  the  following  vindication  of 
its  usefulness. 

The  problems  of  business  are  numerous  and  perplexing. 
The  seller  and  buyer  seldom  stand  face  to  face.  The  seller 
must  rely  in  marketing  his  goods  upon  capital  and  credit 
ratings  which  in  the  nature  of  things  cannot  be  so  accurate 
as  to  preclude  mistakes.  The  unexpected  is  always  happen- 
ing. A  buyer  may  be  prosperous  today  and  bankrupt 
tomorrow;  and  however  efficient  a  credit  department  may 
be,  losses  on  sales  are  inevitable.  The  aggregate  liabilities 
of  firms  which  have  become  bankrupt  in  a  single  decade 
in  the  United  States  have  amounted  to  about  two  billion 
three  hundred  million  dollars. 

Failures  are  due  to  all  sorts  of  causes:  to  inexperience, 
insufficient  capital,  over-buying,  false  credit,  speculation, 
fraud,  a  violent  fall  in  prices,  seasonal  changes,  crop 
failures,  neglect  of  business,  extravagance,  competition, 
endorsing  for  others,  or  a  commercial  crisis;  and  any 
shocking  disaster  of  any  sort,  or  any  sudden  derangement 
of  commercial  affairs  from  any  cause  may  arrest  a  tide  of 
prosperity.  Mortality  in  business  is  constant,  if  variable. 
The  percentage  of  failures  among  those  engaged  in 

5 


business  is  greater  than  the  mortality  among  men.  No 
man  is  wise  enough  to  guard  against  all  the  risks  which 
he  must  assume. 

Because  a  merchant  must  assume  these  risks,  the 
American  Credit- Indemnity  Company  was  organized  for 
his  protection.  The  company  affords  indemnity  for  all 
losses  incurred  on  goods  sold  within  the  period  covered  by 
its  bond  in  excess  of  those  which  are  normal  and  expected, 
and  thereby  gives  to  mercantile  affairs  a  stability  and 
security  which  otherwise  they  must  lack. 

It  does  more.  It  helps  the  merchant  to  sell  goods 
wisely,  by  telling  him  where  he  is  likely  to  lose  and  where 
he  is  relatively  safe.  It  helps  to  reduce  his  normal  loss;  it 
helps  his  credit  department;  it  assists  with  past-due 
accounts;  it  obviates  friction  between  him  and  his  delin- 
quent customers;  and  it  affords  to  him  a  mass  of 
information  which  he  will  find  of  great  use  in  his  business. 

If  you  ask  how  it  does  these  things,  it  replies  that  its 
records  cover  a  period  of  twenty-five  years  and  contain 
not  the  experience  of  one  merchant  engaged  in  one  busi- 
ness, but  the  experience  of  many  thousands  of  merchants 
engaged  in  all  sorts  of  business  in  every  part  of  the  country. 
The  claims  filed  with  it  growing  out  of  unpaid  accounts 
since  its  business  was  established  now  aggregate  more 
than  two  billions  of  dollars.  It  has  sifted  these  records  and 
from  them  derived  useful  information  with  respect  to  the 
causes  of  various  failures  at  various  times  under  various 
circumstances.  From  them  it  has  derived  experience 
tables  which  show  the  actual  risks  in  selling,  what  the 
average  loss  is  on  credit  ratings  A,  B,  and  all  others.  The 
premiums  of  the  company  are  adjusted  to  these  risks,  and 
by  the  emphasis  of  the  charge  upon  each,  we  warn  against 
the  greater  risks.  We  help  the  credit  department  to  under- 

6 


stand  what  to  do,  by  showing  the  merchant  where  his 
losses  occur;  and  we  help  all  business  by  compelling  it  to 
be  more  prudent  where  prudence  is  requisite.  We  mitigate 
the  friction  which  results  from  an  attempt  to  enforce  the 
collection  of  an  overdue  account  by  intervening  between 
the  merchant  and  his  customer;  and  we  reduce  the  mer- 
chant's normal  loss  by  collecting  in  time — not  after  but 
before  failure. 

We  carry  into  business  a  promise  of  indemnity  against 
the  unexpected,  and  thereby  afford  comfort  and  serenity 
and  security  at  a  cost  which  is  far  less  than  the  benefit 
conferred  and  far  less  than  the  losses  avoided.  We  per- 
form in  fact  for  commerce  the  same  sort  of  service  that 
military  discipline  does  for  young  men.  The  average 
mortality  among  men  between  twenty-one  and  thirty-one 
is  eight  thousand  in  a  million  each  year;  in  the  army  it  is 
expected  to  be  within  four  to  six  thousand  in  a  million. 
The  average  business  mortality  is  about  ten  thousand  in 
each  million;  among  those  who  comply  with  the  terms 
and  instructions  of  our  policy  it  will  be  reduced  in  the 
same  proportion. 

We  have  a  collection  department  operated  under  the 
provisions  of  the  policy,  which  provides  that  past  due 
covered  accounts  shall  be  delivered  to  us  for  collection 
within  a  stated  time;  and  we  agree  that  the  filing  of  such 
accounts  shall  have  the  effect  of  proving  them  against  our 
liability  under  our  bond.  We  instantly  proceed  to  collect 
these  accounts  as  soon  as  possible,  and  before  the  embar- 
rassment of  the  customer  has  become  too  serious  to  be 
coped  with ;  and  in  this  manner  we  protect  the  seller  against 
loss  and  ourselves  against  liability.  In  a  single  year  we 
have  so  collected  many  thousands  of  dollars  which  our 
policy-holders  were  unable  to  collect.  We  have  saved  them 

7 


that  much  and  at  the  same  time  helped  their  customers  to 
be  prompt  and  understand  the  sanctity  and  binding  effect 
of  a  promise. 

These  services  we  offer  in  return  for  a  charge  which  is 
less  than  their  value  and  less  than  we  save  for  the  man 
who  pays  it. 

Our  business  is  also  serving,  and  our  serving  is  not 
capricious  and  unintelligent,  but  a  scientific  service  based 
upon  reliable  and  very  numerous  data  which  are  con- 
stantly sifted  for  information  and  suggestion.  Our 
resources  show  our  strength  and  our  policies  show  the 
service  from  which  those  resources  are  derived. 

We  do  a  general  good  and  a  special  good.  We  are  grad- 
ually teaching  buyers  to  be  prompt  in  payment  and  we  are 
attempting  at  the  same  time  to  show  sellers  what  is 
prudent  and  what  is  imprudent  selling. 

Business,  as  the  writer  of  the  pamphlet  shows,  concerns 
itself  with  the  making  and  distribution  of  goods.  We 
furnish  a  very  important  aid  to  distribution:  we  prevent 
waste;  we  indemnify  against  loss;  we  diminish  loss; — and 
because  we  help  both  producer  and  consumer  of  goods, 
we  share  with  the  business  man  in  the  fruits  of  his  benefi- 
cence. We  diminish  the  cost  of  distribution. 

The  American  Credit-Indemnity  Co. 
of  New  York 

By  E.  M.  TREAT,  President 


The  Meaning  of  Business 

—  OR  — 

The  Science  of  Service 


| HE  peace  and  good  will  of  society  depend  upon 
tradition,  and  that  tradition  upon  experience; 
but  the  connection  between  tradition  and  exper- 
ience is  not  always  evident.  We  perceive  the 
value  of  marriage,  but  cannot  always  vindicate  it;  we 
feel  the  need  for  a  State,  but  cannot  justify  its  encroach- 
ments; we  tolerate  manners  and  institutions  not  because 
we  understand  and  approve  them  but  because  we  are 
accustomed  to  them. 

Among  the  institutions  of  society,  none  is  more  fre- 
quently attacked  and  none  is  harder  to  defend,  than 
private  property.  We  think  it  is  indispensable  but  we 
cannot  explain  why.  We  have  no  answer  ready  for  him 
who  questions  the  justice  of  an  uneven  distribution  of 
wealth;  we  cannot  tell  why  this  man  should  be  rich 
and  that  man  poor,  nor  even  explain  how  one  man  can 
become  rich  save  at  the  cost  of  his  neighbors.  When 
we  speak  of  wealth,  or  taxes,  or  capital,  or  wages,  or 
profit,  we  use  the  words  in  a  vague  sense  and  no  two 
men  mean  the  same  thing.  Yet  we  should  agree  with 
respect  to  these  things.  They  are  right  or  wrong,  good 
or  bad.  If  they  are  good,  they  should  be  so  clearly 
justified  as  to  convince  those  who  are  perplexed;  if  they 
are  wrong,  they  should  be  got  rid  of.  Civilization  today 
rests  upon  private  property.  Men  co-operate  to  produce 
it.  Some  men  have  more,  some  less.  Why? 

9 


Political  economy  concerns  itself  with  such  problems. 
For  some  reason,  difficult  to  discover,  it  has  fallen  into 
disrepute.  Men  say  witty  things  of  it,  as  that  it  is  a  dismal 
science  and  the  gospel  of  selfishness;  and  few  attend  to  its 
instruction.  Yet  it  has  occupied  the  thought  and  time  of 
many  very  able  men.  Its  doctrine  is  simple  and  intelli- 
gible: it  deals  with  familiar  facts;  and  what  it  says  is  inter- 
esting and  helpful.  I  have  tried  to  understand  why  so 
useful  an  instruction  is  disregarded  and  have  been  led  to 
believe  that  the  busy  man  has  no  time  to  give  to  the  refined 
and  discriminating  thinking  of  one  whom  he  deems  theo- 
retical and  sophistical.  Each  has  a  peculiar  vision  and  a 
special  experience;  and  neither  can  quite  understand  the 
other.  In  common  parlance,  every  word  is  freighted  with 
experience  and  that  experience  is  shared  by  those  who  use 
it.  The  political  economist  begins  by  inventing  new  words 
or  twisting  old  ones  into  a  strange  significance  in  order  that 
he  may  express  and  fix  a  notion  which  is  peculiar  to  him- 
self. We  are  too  impatient  for  such  instruction.  It  oc- 
curred to  me  that  I  might  extract  from  the  literature  of 
political  economy  certain  of  its  salient  and  most  useful 
doctrines  and  translate  them  into  language  which  should 
be  intelligible  to  every  man;  and  this  essay  is  the  result 
of  that  consideration. 

At  the  outset  I  must  say  a  few  words  in  explanation  of 
the  objects  and  pretensions  of  the  science.  It  is  not  and 
does  not  pretend  to  be  a  moral  science.  It  does  not  teach 
duty  nor  inculcate  philanthropy,  nor  concern  itself  with 
the  benevolent  and  most  worthy  motives  of  private  con- 
duct. It  is  concerned  with  business  only,  with  that  which 
men  do  in  order  that  they  may  live;  with  the  production 
of  wealth  and  its  distribution.  It  observes,  analyzes  and 
explains.  It  assumes  nothing.  It  deals  with  known  and 

10 


familiar  facts.  If  it  offers  an  explanation  of  those  facts, 
it  offers  one  which  is  consistent  with  all  of  them,  and 
attempts  to  show  their  mutual  relationship  and  influence. 
Its  value  is  found  in  the  broadness  of  its  view.  It  con- 
siders not  one  fact  only,  but  every  related  fact:  effect  as 
well  as  cause,  cause  as  well  as  effect;  use  and  function, 
purpose  and  consequence;  exception  and  rule.  What  then 
are  the  facts  with  which  it  is  concerned? 

This  is  a  busy  world.  Men  move  to  and  fro  incessantly, 
each  intent  on  his  own  affairs.  A  vast  majority  of  them 
work  continually.  They  differ  in  character  and  capacity, 
and  perform  various  labors.  Somehow,  they  have  divided 
themselves  into  groups:  we  have  farmers  and  millers, 
miners  and  blacksmiths,  tanners  and  shoemakers,  mer- 
chants and  carriers,  bankers  and  brokers,  each  of  whom 
does  some  special  work.  No  one  seems  to  work  for  him- 
self, but  everybody  for  somebody  else.  What  one  makes 
he  sells;  what  he  needs  he  buys.  All  are  engaged  either 
in  the  production  or  distribution  of  wealth,  and  the  labor 
of  all  is  a  co-operative  labor.  Each  depends  upon  the 
other:  the  maker  upon  the  consumer,  the  seller  upon  the 
buyer,  the  borrower  on  the  lender.  The  product  of  a  joint 
or  co-operative  labor  is  distributed  in  a  conventional  way 
to  each  in  accordance  with  some  rule  or  practice  which 
has  grown  up  among  us:  one  receiving  wages,  another 
profits  and  another  interest.  Trade  is  everywhere.  We 
have  established  markets  and  exchanges  where  we  get 
what  we  need  and  dispose  of  what  we  have.  In  some 
manner  the  right  articles  are  brought  forward  in  the  right 
quantities,  and  no  need  of  a  luxurious  people  remains 
unsatisfied.  There  is  work  for  everybody  willing  to  work. 
The  prosperity  of  one  man  does  not  seem  to  diminish  the 
goods  of  another.  Poor  people  are  continually  forging  to 

11 


the  front.  Riches  are  soon  dissipated.  We  co-operate  not 
because  we  must  but  because  we  choose  to  do  so:  yet  by 
his  work  the  individual  seeks  not  another's  good  but  his 
own.  Everybody  seems  selfish  in  the  sense  that  his  motive 
is  selfish.  If  he  serves,  he  serves  for  pay;  if  he  sells,  he 
sells  for  profit.  These  are  the  facts  which  confront  us: 
the  selfishness  of  mankind;  the  spontaneous  division  of 
labor;  the  co-operative  character  of  all  industry;  the 
mutual  dependence  of  men;  the  unequal  distribution  of 
wealth;  and  with  these  facts  political  economy  is  con- 
cerned. What  is  its  explanation? 

Assuming,  as  it  must,  that  all  men  are  selfish,  and 
allowing  the  operation  of  this  motive  free  play,  how  has  it 
served  to  bring  about  the  co-operative  organization  of 
industry  which  we  now  observe?  Men  are  selfish  and  free: 
what  influence  has  bound  them  to  mutual  service? 

Let  us  begin  at  the  beginning  and  endeavor  to  trace 
the  evolution  of  industry.  Society  as  we  know  it  is  rather 
a  growth  than  a  creation.  Our  ancestors  were  barbarians 
who  moved  about  in  search  of  food  until  they  were  com- 
pelled to  settle  by  stress  of  circumstances.  They  had 
neither  social,  political  nor  industrial  organization  of  any 
sort.  Game  and  fruits  were  abundant,  and  every  man  by 
slight  exertion  might  have  enough.  War  was  their  serious 
occupation.  When  however,  population  increased  in  this 
or  that  favorable  locality,  a  change  was  inevitable.  The 
hunter  became  the  herder,  the  gatherer  of  wild  fruits  the 
cultivator  of  the  soil;  and  after  a  time  settlements  were 
formed  which  prospered  or  languished  according  to  the 
habits  of  the  people  and  the  resources  of  the  country  they 
inhabited.  If  they  thrived,  others  envied  them  and  disorder 
ensued  which  compelled  the  adoption  of  means  of  defense. 
So  places  of  refuge  were  established  and  in  the  course  of 

12 


time  these  places  became  walled  towns,  or  castles.  Men 
were  forced  into  closer  union  and  mutual  dependence  by 
constant  stress  from  without;  and  to  meet  these  new 
conditions  industry  had  to  be  modified.  The  dweller  in  a 
town  was  unable  to  produce  his  food  and  was  therefore 
compelled  to  earn  it  in  some  other  manner.  Observing  the 
needs  of  the  country-man,  he  set  himself  to  making  tools, 
or  weaving  cloth,  or  dressing  leather;  and  these  products 
he  exchanged  for  what  he  wanted.  In  a  little  while  the 
advantages  of  a  divided  labor  became  evident.  Better 
clothing  and  better  leather  were  the  results  of  acquired 
skill,  and  the  farmer,  being  relieved  from  the  trouble  of 
making  these  things,  produced  more  grain.  Communities 
therefore  thrived  and  increased  in  power,  and  order  was 
extended  farther  and  farther.  Little  states  and  communi- 
ties began  to  trade  with  each  -other,  each  availing  itself  of 
its  own  resources  and  devoting  its  energies  to  the  work 
it  could  do  best.  The  South  traded  with  the  North,  the 
East  with  the  West,  and  the  argosies  of  commerce  en- 
circled the  known  world. 

In  the  light  of  history  it  is  evident  that  selfish  men 
began  and  continued  to  co-operate  because  they  found 
co-operation  to  be  advantageous  to  themselves.  They  got 
more  for  themselves  by  producing  goods  for  others  than 
they  could  get  by  working  for  themselves  only.  Let  us 
understand  this  result  clearly.  Its  explanation  is  simple. 

No  man  can  be  good  at  all  trades.  Practice  makes 
perfect.  The  skilled  workman  can  produce  more  in  a  given 
time  than  the  unskilled.  If  a  man  can  make  a  hat  and  a 
pair  of  shoes  in  one  day,  he  will  be  enabled  by  the  practice 
of  one  or  other  trade  to  make  three  hats  or  three  pairs  of 
shoes  in  the  same  time.  Where  therefore  A  makes  shoes 
only  and  B  hats  only,  the  daily  product  of  their  divided 

13 


labor  should  be  three  pairs  of  shoes  and  three  hats  as 
against  two  pairs  of  shoes  and  two  hats.  By  exchanging  a 
hat  for  a  pair  of  shoes  each  will  have  what  he  needs  and  a 
hat  or  a  pair  of  shoes  besides,  which  he  may  use  to  gratify 
other  wants.  Specialization  without  trade  is  fruitless;  with 
trade  it  is  beneficial  precisely  in  proportion  to  the  increased 
product  resulting  from  a  divided  industry. 

Selfishness  pushed  men  into  co-operation.  Its  influence 
was  inexorable.  Men  seemed  free  but  they  were  not  so. 
Formerly  they  were  compelled  to  do  what  seemed  advanta- 
geous to  their  masters;  some  were  forced  to  fight  and  some 
to  furnish  food.  The  Romans  assumed  that  the  state 
could  not  safely  leave  to  every  man  the  choice  of  his 
occupation,  and  therefore  compelled  each  to  follow  the 
trade  of  his  ancestor.  A  blacksmith's  son  was  bound  to 
be  a  blacksmith.  By  the  law  of  England,  men  were  serfs 
or  villeins  or  artisans  according  to  the  accident  of  birth. 
In  the  cities  guilds  were  established  and  exclusive  privi- 
leges were  conferred  upon  them  in  order  to  encourage 
crafts  deemed  useful  to  the  state.  Slowly  and  unconsciously 
in  the  course  of  a  long  period  of  time,  as  the  result  rather 
of  the  stress  than  the  instruction  of  experience,  we  were 
forced  away  from  slavery  into  the  system  which  now 
prevails.  Today  men  are  constrained  by  economic  laws. 
We  allow  them  freedom  because  we  no  longer  fear  it. 
Try  as  they  may,  they  cannot  thrive  save  by  co-operating 
with  their  fellows.  Meaning  to  work  for  themselves  alone, 
they  must  work  for  others. 

The  evolution  of  a  co-operative  industry  is  inevitable. 
Society  is  as  selfish  as  the  individuals  who  compose  it. 
It  will  not  let  any  man  thrive  who  will  not  serve.  It 
depends  upon  labor  for  all  that  it  needs,  and  therefore 
encourages  efficient  labor  and  discourages  inefficient.  Where 

14 


two  are  engaged  in  the  same  business  and  one  can  produce 
easily  and  cheaply  and  the  other  with  difficulty  and  at 
great  cost,  the  former  is  more  useful  to  the  community:  he 
can  sell  for  less.  So  it  encourages  him,  and  discourages 
the  other,  by  buying  from  him.  If  it  were  not  for  this 
correction,  industry  would  fall  into  decay.  The  cost  of 
goods  must  be  less  than  the  price  paid  for  them  in  order 
that  a  selfish  man  may  be  induced  to  make  them;  but  the 
goods  must  be  worth  to  the  community  more  than  the  cost 
of  making,  in  order  that  its  resources  may  not  be  wasted. 
He  who  spends  ten  dollars  in  making  goods  worth  eight, 
has  wasted  two  dollars  and  hurt  both  himself  and  others. 
He  has  in  fact  become  a  consumer  rather  than  a  producer 
of  goods.  Competition  and  the  selfishness  of  the  community 
prevent  this  waste  by  continually  operating  against  ineffi- 
cient labor. 

Trade,  which  distributes  goods,  is  guided  by  like  in- 
fluences. Money  does  not  obviate  all  the  inconveniences 
of  trade,  for  notwithstanding  its  use  the  producer  and 
consumer  must  still  be  brought  together.  The  merchant 
is  the  marketer  of  goods:  he  knows  where  they  are  cheap 
and  where  dear,  where  abundant  and  where  scarce.  The 
more  diversified  industry  is,  the  greater  the  need  of  trade. 
New  England  is  a  manufacturing  community;  Kansas 
raises  corn.  A  merchant  transports  grain  to  the  manu- 
facturer and  shoes  and  clothing  to  the  farmer;  and  in  order 
to  do  so  profitably  must  be  familiar  with  the  needs  of  each 
locality.  His  success  depends  upon  his  intelligence.  If  he 
carries  dear  goods  to  a  cheap  market,  he  does  no  good  to 
the  community  and  its  punishment  is  relentless.  Where 
several  engage  in  the  same  trade,  he  who  offers  goods  at 
the  lowest  price  is  preferred  to  him  who  charges  more; 
and  so  by  its  discriminating  buying  society  compels  effi- 

15 


cient  service  and  brings  about  an  advantageous  distribu- 
tion of  goods.  Trade  like  production  is  regulated  by  the 
law  of  supply  and  demand  and  controlled  by  competition; 
and  all  of  those  engaged  in  it  must  render  a  needed  service 
at  least  cost  in  order  to  thrive. 

So  men  choose  their  own  occupations,  manufacturing 
or  trade  as  they  prefer,  but  their  prosperity  depends 
always  upon  the  need  for  and  efficiency  of  their  service. 
Competition  is  incessant,  and  under  its  constant  stress 
every  man  is  forced  to  do  what  he  can  do  best. 

Such  in  brief,  is  the  origin  and  evolution  of  our  present 
plan  for  distributing  the  work  of  the  world  and  rewarding 
industry.  It  is  by  no  means  a  perfect  plan,  since  it  depends 
upon  the  intelligence  as  well  as  the  selfishness  of  men  and 
not  all  men  are  competent  to  do  all  sorts  of  work.  Never- 
theless the  plan  is  superior  to  any  that  could  be  devised 
by  the  wit  of  man.  It  allows  opportunity  to  ability,  stimu- 
lates industry  by  rewarding  it,  induces  thrift,  and  so  pro- 
motes the  welfare  of  the  individual.  It  tends  also  to 
cheap  production  and  just  distribution  of  the  right  sorts  of 
goods  and  therefore  promotes  the  welfare  of  the  commu- 
nity. It  is  not  only  profitable  to  the  worker  and  the 
community,  but  it  is  better  suited  to  our  free  and  inde- 
pendent character  than  those  enforced  methods  of  co- 
operation which  were  formerly  tried.  But  being  free,  we 
must  accept  the  consequences  of  our  own  infirmities,  and 
we  will  be  apt  to  accept  them  without  repining  if  we  remem- 
ber that  the  needs  of  the  community  are  paramount  and 
that  we  should  yield  the  better  job  to  the  better  man. 
If  the  system  does  involve  an  uneven  distribution  of 
goods,  it  is  because  men  vary  in  intelligence,  in  zeal  and 
in  industry  and  that  rewards  are  apportioned  in  such 
manner  as  to  encourage  the  best  rather  than  the  worst  sort 

16 


of  service.  If  men  suffer  under  it,  their  afflictions  are  the 
result  of  their  own  demerits  and  are  imposed  not  by  any 
tyrant  but  by  a  universal  law  which  is  benign,  corrective 
and  indispensable.  There  is  no  captain  of  industry  with 
arbitrary  power.  The  employer  is  an  humble  servant  of 
society,  forced  to  do  its  will  and  promote  its  prosperity  by 
compelling  influences  which  cannot  be  evaded;  and  so  is 
the  employe.  By  these  laws,  private  selfishness  is  com- 
pelled always  to  be  subservient  to  the  general  good. 

The  effects  of  such  a  free  plan  upon  the  prosperity  of 
those  engaged  in  industry  can  be  inferred  from  what  has 
been  said.  Yet  as  a  particular  explanation  of  a  special 
fact  is  apt  to  be  more  instructive  than  a  general  explana- 
tion of  many,  it  is  proper  that  I  should  discuss  wages, 
profit  and  interest,  and  endeavor  to  show  how  the  products 
of  a  particular  co-operative  industry  are  distributed  among 
those  engaged  in  it. 

The  laborer  is  free  to  choose  his  job,  but  cannot  fix  his 
compensation.  What  law  or  influence  fixes  his  wages?  Is 
it  an  error  to  assume  that  the  employer  cannot  arbitrarily 
pay  what  he  chooses;  is  the  theoretical  freedom  which 
I  have  described  a  myth  and  must  one  man  obey  and 
another  govern  and  reward  according  to  his  caprice?  These 
questions  lie  at  the  root  of  the  dissatisfaction  which  has  in- 
duced the  formation  of  unions.  They  should  be  clearly 
answered. 

The  factors  of  wealth  are  the  workman,  the  director 
or  employer,  and  the  machine  which  may  for  convenience's 
sake  be  called  capital.  That  their  united  prosperity 
depends  primarily  upon  the  results  of  their  co-operation, 
upon  the  amount  of  wealth  produced  by  it,  ought  to  be 
evident.  If  a  hundred  men  live  upon  an  inaccessible  island 
and  depend  upon  what  they  produce  for  existence,  their 

17 


prosperity  must  depend  upon  what  and  how  much  they 
produce.  If  they  produce  little,  they  will  have  little;  if 
the  common  stock  is  great,  they  will  have  more  collec- 
tively. How  the  stock  should  be  distributed  is  a  question 
by  itself;  but  unless  enough  is  produced  there  will  not 
be  enough  to  go  round,  however  the  distribution  may  be 
effected.  Wages  cannot  be  high,  however  they  may 
be  fixed,  if  the  wealth  or  fund  out  of  which  they  must  be 
paid  is  small. 

The  laborer  therefore  is  as  much  concerned  as  the 
employer  in  promoting  by  every  means  within  his  control 
the  efficiency  of  the  industry  in  which  he  is  engaged. 
Such  efficiency  depends  not  only  on  himself  but  upon  the 
intelligence  of  the  employer  and  upon  the  capital  resources 
which  he  can  command.  The  employer  must  study  the 
markets  and  ascertain  what  the  community  needs,  how 
much  the  goods  cost  and  what  he  can  sell  them  for.  The 
capitalist  provides  the  tools  and  machinery,  the  raw 
material  and  the  wages  which  must  be  paid  during  the 
making  and  distribution.  Each  factor  is  indispensable  and 
helpful.  So  far  as  the  actual  production  is  concerned, 
capital  is  more  influential  than  either  of  the  others.  With- 
out a  machine  a  man  can  make  so  much;  with  it  he  can 
make  five  times  as  much.  Quantity  is  of  first  importance. 

How,  in  the  light  of  these  considerations,  should  the 
fruits  of  the  joint  enterprise  be  distributed?  Justice 
requires  that  each  factor  should  be  paid  in  proportion  to 
its  contribution  to  the  result.  The  distribution  of  goods 
is  roughly  accomplished  under  the  free  and  spontaneous 
plan  which  is  now  established.  Its  actual  operation  is 
controlled  by  what  is  called  the  law  of  supply  and  demand, 
but  back  of  that  law  is  a  subtle  and  abiding  principle  which 
I  shall  presently  explain. 

18 


Wages,  profit  and  interest  depend  then  primarily  upon 
the  abundant  production  of  the  right  articles.  To  produce 
little  or  to  produce  the  wrong  articles  is  to  impair  at  once 
the  prosperity  of  the  community,  the  workman,  the 
employer  and  the  capitalist.  Every  one  has  observed  that 
men  seem  to  be  prosperous  and  depressed  at  the  same 
time:  the  factories  are  busy  when  trade  is  brisk,  and  trade 
is  brisk  when  wages  and  profits  are  high. 

Wages,  profits  and  interest  are  therefore  earned  and 
paid  by  the  industry,  and  except  they  be  so  earned  they 
cannot  be  paid.  Assuming  that  all  are  earned,  what  con- 
trols the  relative  part  of  each?  Laborers  think  the  em- 
ployer pays  and  fixes  wages;  and  the  employer  thinks  the 
labor  union  fixes  them.  The  truth  is  that  neither  can 
control.  Where  a  man  can  get  five  dollars  a  day  he  will 
not  work  for  three,  and  where  an  employer  cannot  make 
a  profit  at  the  wages  demanded  he  will  stop  his  enterprise. 
Neither  controls  the  other,  each  is  subject  to  the  same 
compelling  influence.  Neither  can  make  more  than  he 
earns,  nor  less.  However  benevolent  the  employer  may  be, 
he  cannot  raise  wages  above  those  earned.  If  he  tries  to 
pay  high  wages  without  some  compensating  service,  he 
must  charge  high  prices,  and  these  the  community  will 
not  tolerate  where  the  goods  may  be  bought  for  less. 
Neither  can  the  employer  pay  less  than  the  general  rate, 
for  he  cannot  compel  free  men  to  accept  less  than  they 
are  worth  and  can  get  elsewhere.  The  case  of  the  "sweater" 
is  peculiar.  Each  year  many  ignorant  foreigners  land  at 
the  port  of  New  York  who  know  nothing  of  our  language 
and  industrial  conditions.  They  must  work  in  order  to 
live,  and  they  offer  their  services  in  competition  with  each 
other  to  the  special  trades  for  which  they  are  fit,  such  as 
sewing  and  garment  making.  They  are  in  fact  never  free 

19 


and  afford  not  a  refutation  of  the  law  under  consideration 
but  an  example  of  the  pathetic  condition  of  the  incompe- 
tent. Those  crafts  which  require  the  highest  skill  are  best 
paid.  A  few  years  ago  an  automobile  manufacturer  tried 
a  significant  experiment  which  seemed  to  show  that  the 
employer  might  pay  such  wages  as  he  desired.  He  an- 
nounced that  he  would  pay  not  less  than  five  dollars  a  day. 
His  subsequent  success  was  due  however  not  to  his  benevo- 
lence but  to  the  character  of  the  special  workmen  whom 
he  enlisted  in  his  service.  The  wages  offered  were  so  high 
that  he  was  free  to  choose  the  best,  and  he  rigorously 
exacted  of  them  one  condition,  namely,  that  each  must 
earn  his  wages.  He  could  not  have  so  increased  the  wages 
of  incompetent  men.  He  increased  the  efficiency  of  his 
factory  by  stimulating  the  zeal  of  selected  mechanics  and 
by  means  of  their  co-operation  realized  a  greater  output 
at  less  cost  than  ever  before  in  a  like  industry.  His  men 
earned  their  wages. 

Let  me  assume  what  we  so  rarely  observe:  that  an 
employer  is  excellently  wise,  that  he  knows  trade  and  his 
business,  that  his  credit  is  good  because  deserved,  that  he 
is  emancipated  from  all  injurious  restraints,  that  he  is 
surrounded  by  skillful  workmen  eager  to  assist,  and  com- 
mands the  best  machinery  known  to  the  craft.  What 
must  be  the  consequences?  Will  not  the  goods  produced 
by  such  zealous  and  intelligent  co-operation  fulfill  all  the 
conditions  of  success  as  we  have  outlined  them:  quantity, 
the  right  sort,  cheapness?  Will  not  such  an  enterprise,  so 
conducted,  drive  to  the  wall  all  competitors  who  lack 
similar  advantages,  or  force  them  to  equal  efficiency? 
Will  not  such  competition  tend  to  the  welfare  of  the  whole 
community,  and  ultimately  realize  for  everybody  engaged 
in  industry  a  corresponding  advantage  in  the  abundance 

20 


and  cheapness  of  all  goods?  And  will  not  the  laborer  get 
his  share  in  the  ease  with  which  he  may  satisfy  his  wants? 
Goods  are  made  for  his  consumption,  and  he  cannot  fail 
to  profit  by  their  abundance  and  cheapness.  By  con- 
tributing much  to  the  welfare  of  others,  he  promotes  his 
own;  and  so  men  thrive  by  mutual  service. 

Why  one  man  gets  more  pay  than  another  is  of  easy 
solution.  The  hatter  who  makes  one  hat  a  day  is  paid  less 
than  he  who  makes  two:  the  man  who  rakes  the  fires,  less 
than  he  who  controls  the  engine.  The  superior  work  gets 
the  better  wages,  and  by  superior  I  mean  not  less  un- 
comfortable but  more  difficult  and  more  needed  or  more 
productive. 

The  sum  of  these  considerations  is  this:  wages  depend 
upon  the  product  of  labor,  and  that  product  upon  the 
efficiency  of  labor  and  the  intelligence  of  the  manager. 
If  you  wish  to  find  a  prosperous  country  where  high  wages 
are  paid,  seek  that  which  uses  most  machines  and  employs 
the  highest  intelligence.  America  is  that  country  today, 
not  because  we  have  protective  laws  and  labor  unions,  but 
in  spite  of  them.  We  produce  more  wealth  per  capita  than 
any  nation  in  the  world  and  therefore  have  more  to 
distribute. 

Profits  depend  upon  like  considerations.  In  order  that 
they  may  be  earned  the  factory  must  produce  goods  at  a 
cost  which  is  less  than  the  market  price.  The  employer 
must  compete  with  all  others  in  the  same  business,  and  his 
success  depends  upon  his  ability,  all  other  things  being 
equal.  The  risks  involved  in  the  enterprise  rest  on  him; 
he  must  pay  wages  and  interest  whether  they  are  earned 
or  not.  In  time  of  prosperity  he  must  accumulate  enough 
for  adversity.  If  his  income  seems  at  times  great,  his 
losses  are  sometimes  great.  His  fortune  will  ever  depend 

21 


upon  his  intelligence  and  resources  and  be  proportionate 
to  his  service.  He  cannot  be  overpaid  nor  underpaid,  in 
the  long  run.  If  in  a  special  industry  he  earns  too  much, 
others  have  an  inducement  to  compete  with  him.  If  he 
earns  little,  he  will  receive  little.  If  he  is  unfit  for  his  job, 
nothing  can  save  him.  That  on  the  whole  he  earns  what  he 
gets  is  evident  to  everyone  who  considers  the  co-operative 
experiments  which  are  from  time  to  time  tried.  No  in- 
dustry controlled  by  a  committee  of  workmen  has  ever 
been  able  to  long  survive.  1 1  cannot  compete,  lacking  the 
requisite  guidance. 

Interest  is  that  part  of  the  output  of  a  factory  which 
is  paid  for  the  use  of  the  capital  employed.  The  lender  as 
a  rule  exacts  security  of  some  sort,  and  as  his  risk  is  small 
his  reward  depends  upon  the  average  cost  of  capital  in 
the  money  market,  or  on  what  is  called  the  supply.  The 
credit  of  all  men  is  not  equal.  One  deserves  more  than 
another,  but  every  borrower  is  dependent  in  some  degree 
on  the  money  market,  and  so  is  every  lender.  Interest 
rates  fluctuate  from  time  to  time  in  response  to  a  fluctu- 
ating demand.  An  active  trade  requires  more  capital  than 
a  dull  trade,  and  earns  more.  Rates  are  therefore  low 
when  business  is  dull  and  high  when  it  is  active.  They 
are  still  higher  in  time  of  trial,  as  when  business  is  perilous 
and  unusual  risks  are  to  be  confronted.  In  order  to  pay 
interest,  the  industry  must  earn  it.  Interest  is  governed 
by  the  influences  which  control  wages  and  profit.  Capital 
embarked  in  an  unuseful  enterprise  cannot  earn  and 
cannot  pay  a  return.  One  capitalist  must  compete  with 
another,  and  the  results  of  this  competition  are  felt  in  the 
money  markets.  No  one  can  arbitrarily  fix  interest  rates. 

It  seems  therefore  that  wages,  profit  and  interest  cannot 
be  arbitrarily  fixed  by  anybody.  All  are  controlled  by 


economic  influences  which  none  can  disregard.  Primarily 
the  welfare  of  the  community  depends  upon  the  abundance 
of  goods  needed.  If  everybody  is  intelligently  employed 
and  the  right  goods  are  produced  abundantly  at  little  cost, 
the  community  thrives  and  everybody  in  it  thrives  who 
will  do  his  part.  Wages  and  profit  will  be  high  because  the 
rewards  of  all  industry  are  abundant  and  cheap.  Interest 
will  be  low  because  capital  will  be  cheap.  If  on  the  other 
hand  few  goods  are  produced  at  great  cost  in  human  effort, 
the  community  and  all  comprising  it  will  languish  in 
poverty.  There  will  be  few  goods,  and  wages  and  profits 
will  tend  to  a  minimum  while  interest  will  tend  to  rise. 
The  fruits  of  a  co-operative  labor  are  not  distributed 
arbitrarily  but  in  accordance  with  a  just  and  useful  economic 
law  which  secures  to  each  worker  a  reward  which  corre- 
sponds with  his  service. 

We  are  now  brought  face  to  face  with  that  private 
property  which  we  set  out  to  consider.  It  appears  from 
what  has  been  said  that  wealth  is  now  produced  by  a 
divided  but  co-operative  labor,  yet  that  its  distribution  is 
unequal.  There  is  a  widespread  notion  that  such  dis- 
tribution is  unjust  because  it  is  unequal.  The  social 
unrest  which  afflicts  us  results  from  the  conviction  that 
somehow  one  man  has  received  more  and  another  less  than 
is  due  to  him.  That  there  are  rich  men  and  poor  men; 
that  the  workman  receives  less  than  the  employer;  that 
some  men  enjoy  large  incomes  without  doing  any  labor; 
no  one  can  deny.  Do  these  facts  justify  the  dissatisfaction 
which  is  so  frequently  expressed? 

The  question  involves  moral  as  well  as  practical  con- 
siderations. If  what  seems  right  results  in  wrong,  it 
cannot  be  justified  on  moral  grounds.  Private  property 
rests  upon  tradition.  From  the  beginning  it  has  been 

23 


assumed  that  men  have  a  natural  right,  that  is,  an  obvious 
and  just  claim,  to  goods  produced  by  their  own  efforts. 
If  I  make  a  hoe,  it  is  mine  by  the  common  opinion  of 
mankind.  My  ownership  can  result  in  injury  to  none. 
Is  this  the  case  which  confronts  us?  Are  men  now  claim- 
ing what  belongs  to  them  by  natural  right;  is  their  parti- 
cipation in  the  fruits  of  a  co-operative  labor  proportionate 
to  the  actual  contribution  of  each  to  the  production  of 
such  goods;  is  inequality  just  in  the  sense  that  my  having 
more  does  not  result  in  another's  having  less;  or  are  some 
poor  because  others  are  rich; — these  are  the  questions 
which  must  be  answered. 

I  have  endeavored  to  fully  explain  the  advantages  of 
co-operation  and  to  trace  these  advantages  to  the  increased 
efficiency  of  the  specialized  or  divided  labor  which  now 
characterizes  all  industry.  Men  work  for  each  other 
because  it  is  more  profitable  to  do  so  than  to  work  for  them- 
selves. By  dividing  labor  they  make  more  goods,  and  the 
increment  in  the  output  is  shared  by  means  of  trade.  I 
have  altogether  failed  in  this  essay  if  it  is  not  obvious  that 
workers  thrive  in  proportion  to  their  service.  If  this  be 
true,  then  the  wealth  which  a  man  derives  from  his  work, 
is  his  own  by  the  common  opinion  upon  which  every  sort 
of  property  must  ultimately  rest;  and  he  can  do  what  he 
wishes  with  it:  for  we  cannot  allow  him  a  property  in  the 
goods  he  creates  and  deny  him  a  property  in  those  which 
another  creates  and  gives  him  in  exchange  for  his  own. 

Reason  however  has  very  little  to  do  with  our  notions 
of  property.  If  we  envy  a  man  of  greater  ability,  it  is 
natural  to  deny  his  superiority;  if  we  have  less  than  another 
by  deserving  less,  we  may  still  question  his  right  to  more. 
The  dissatisfied  part  of  the  community  will  ever  find  an 
excuse  in  an  accusation.  In  the  present  instance  however 

24 


the  accusation  is  fortified  by  plausible  considerations  which 
even  a  just  man  finds  it  hard  to  be  rid  of.  We  have  recently 
invented  an  ugly  word — "profiteer" — which  contains  such 
considerations.  Men  hate  another's  profit  instinctively 
because  they  believe  it  involves  a  loss  to  themselves.  No 
one  greets  the  seller  with  the  cordiality  which  he  shows  to 
the  buyer.  Nations  fear  what  is  called  an  adverse  balance 
of  trade,  not  because  it  can  be  an  evil  to  have  an  income 
in  excess  of  an  outgo,  but  because  they  wish  a  profit  which 
they  assume  is  to  be  derived  from  selling  more  than  they 
buy.  The  persistence  of  this  error  is  so  remarkable  that 
it  is  necessary  to  understand  its  origin  in  order  to  refute  it. 

What  then  is  trade;  what  does  it  involve;  what  does  it 
result  in?  If  I  exchange  a  pair  of  shoes  for  a  hat,  I  am 
trading;  if  I  sell  a  pair  of  shoes  and  buy  a  hat,  I  am  trading. 
The  two  transactions  are  identical:  in  the  former  I  barter 
one  commodity  for  another  and  in  the  latter  I  do  the  same 
thing  by  means  of  a  medium  of  exchange  called  money. 
That  the  trade,  however  conducted,  involves  a  profit  or 
advantage  to  both  parties,  ought  to  be  evident;  yet  while 
men  admit  the  mutual  profit  of  barter,  they  deny  that 
such  profit  is  mutual  where  goods  are  bought  and  sold. 

Let  us  consider  the  two  cases.  By  a  divided  labor 
more  hats  and  more  shoes  are  produced  than  where  both 
articles  are  made  by  one  man.  Where,  as  in  the  case 
assumed,  three  hats  and  three  pairs  of  shoes  are  made 
by  A  and  B  respectively  as  against  a  hat  and  a  pair  of 
shoes  which  each  might  have  made  independently,  A  may 
have  two  hats  and  one  pair  of  shoes  and  B  two  pairs  of 
shoes  and  one  hat  by  trading  a  hat  for  a  pair  of  shoes. 
If  we  assume  that  a  hat  is  worth  a  pair  of  shoes,  each  is 
better  off  to  the  extent  of  that  worth  as  the  result  of 
specialization  and  trade.  To  such  a  trade  neither  can  be 

25 


regarded  as  buyer  or  seller,  for  each  is  both,  and  both 
realize  the  same  profit. 

Now  let  us  assume  that  the  hatter  and  shoemaker  use 
money  and  sell  and  buy  instead  of  bartering  their  goods. 
Each  starts  with  say  $5.00  and  three  articles,  and  each 
buys  from  the  other  a  hat  or  a  pair  of  shoes  for  $5.00. 
After  such  a  trade  has  been  effected,  each  will  have  $5.00 
and  precisely  what  he  would  have  had  if  the  shoes  had 
been  bartered  for  the  hat;  in  other  words,  the  profit  realized 
by  buying  and  selling  is  precisely  the  profit  realized  from 
barter. 

In  the  case  assumed,  hats  and  shoes  are  reckoned  at 
equal  value.  If  a  hat  cost  $3.00  and  a  pair  of  shoes  $4.00, 
the  problem  is  a  little  confused,  but  the  result  is  the  same. 
If  each  starts  with  $5.00  and  the  goods  produced  by 
himself,  after  selling  and  buying  a  hat  or  a  pair  of  shoes 
the  hatter  will  have  two  hats,  a  pair  of  shoes  and  $4. CO; 
and  the  shoemaker  will  have  two  pairs  of  shoes,  a  hot 
and  $6.00; — or  to  express  the  account  in  dollars  only: 

Hatter's  Account. 

Before  trading.    Cr.   3  hats  costing  $3  each  =  $9. 

Cash  on  hand  5 . 

After  trading.       Cr.   2  hats  costing  $3  each  =  $6. 

1  pair  of  shoes  at  $4.00  4. 

Balance  of  cash  1 . 

Price  received  for  hat  3 . 


$14.     $14, 


26 


Before  trading. 
After  trading. 


Shoemaker's  Account. 
Cr.   3  pairs  of  shoes  at  $4. 

Cash  on  hand 
Cr.   2  pairs  of  shoes  at  $4. 

1  hat,  costing  $3. 

Balance  of  cash 

Price  of  shoes 


$12. 
5. 


$8. 
3. 
2. 
4. 


$17.     $17 


Let  us  now  assume  that  each  values  his  commodity  at 
$1.00  more  than  it  cost,  and  sells  at  that  profit. 


Before  trading.    Cr. 
After  trading.      Cr. 


Hatter's  Account. 
3  hats  at  $4.  = 
Cash  on  hand 
2  hats  at  $4.  = 
1  pr.  of  shoes  costing  $5. 
Price  received  for  hat 


$12. 
5. 


$8. 
5. 
4. 


$17.     $17. 


Before  trading. 
After  trading. 


Shoemaker's  Account. 
Cr.   3  prs.  of  shoes  at  $5.  = 

Cash  on  hand 
Cr.   2  prs.  of  shoes  at  $5.  = 

1  hat  costing  $4.  = 

Balance  of  cash 

Price  received  for  shoes 


$15 
5 


$10 
4 
1 
5 


$20.     $20. 

These  examples  show  that  barter  itself  does  not  increase 
nor  diminish  the  wealth  of  either  party  in  any  real  sense. 
In  the  case  last  assumed,  the  shoemaker  created  a  greater 

27 


value,  measured  in  money,  than  the  hatter;  but  after 
trading  each  had  precisely  as  much  as  he  started  with. 
They  exchanged  one  sort  of  goods  for  another,  but  the 
values  exchanged  were  equivalent.  Each  got  what  he 
needed  in  exchange  for  what  he  made;  and  this  is  the 
whole  advantage  involved  in  the  trade. 

The  nominal  profit  as  distinguished  from  such  an 
advantage,  which  seems  to  result  from  trade,  is  deceptive. 
In  order  that  this  fact  may  be  distinctly  understood,  let  us 
assume  that  each  of  the  traders  sells  the  whole  of  his  goods 
to  the  other  at  a  profit: 

Hatter's  Account. 


Before  trading.    Cr.   Cash  $15. 

3  hats  cost  $3.  valued 

at  $4=  12. 

After  trading.      Cr.    Cash  from  3  hats  $12. 

3  pr.  shoes  costing  $5.  =  15. 

$27.     $27. 

Shoemaker's  Account. 

Before  trading.    Cr.   Cash  $15. 

3  pr.  shoes  cost  $4.  valued 

at  $5.=  15. 

After  trading.      Cr.   Cash  from  3  pr.  shoes  $15. 

3  hats  valued  at  $4.  =  12. 

Cash  balance  3. 

$30.     $30. 

We  are  deceived  by  what  seems  a  profit  because  the 
shoemaker  and  the  hatter  rarely  do  business  together. 
Each  sells  in  the  open  market  and  buys  in  the  open  market. 
The  business  of  the  merchant  is  to  assemble  goods  in  order 

28 


that  they  may  be  exchanged,  and  if  we  assume  that  the 
merchant  makes  nothing  out  of  his  service  the  results  of 
a  trade  made  through  him  seem  to  be  as  follows: 

Hatter's  Account. 

Before  selling.      Cr.   Cash  on  hand  $15. 

3  hats  cost  $3  =  9. 

After  selling.        Cr.   Cash  on  hand  $15. 

3  hats  sold  at  $4.  =          ]2^ 

$24.     $27. 
Profit  $3. 

Shoemaker's  Account. 

Before  selling.      Cr.   Cash  on  hand  $15. 

3  pr.  shoes  cost  $4.  12. 

After  selling.        Cr.   Cash  on  hand  =  $15. 

3  pr.  shoes  sold  at  $5.  =  15. 

$27.     $30. 
Profit  $3. 

Each  therefore  seems  to  have  made  a  profit  of  $3.00. 
The  transaction  however  is  incomplete,  for  in  the  case 
assumed  each  buys  the  other's  goods. 

Hatter's  Account. 

Before  buying.     Cr.   Cash  $15. 

Proceeds  of  3  hats 

sold  at  $4.  12. 

After  buying.       Cr.   3  pr.  shoes  bought  at  $5.  $15. 

Balance  of  cash  12. 

$27.     $27. 
29 


Shoemaker's  Account. 

Before  buying.     Cr.   Cash  $15. 

Proceeds  3  pr.  shoes  at  $5.  15. 
After  buying.       Cr.   3  hats  bought  at  $4.  $12. 

Balance  of  cash  18. 

$30.     $30. 

It  will  be  observed  that  as  a  result  of  the  completed 
transaction  the  hatter  has  lost  $3.00  of  his  cash  and  the 
shoemaker  has  added  $3.00  to  his.  The  transaction  seems 
therefore  to  have  been  profitable  to  the  shoemaker  and 
unprofitable  to  the  hatter;  yet  it  is  quite  evident  that 
neither  is  worse  or  better  off  than  at  the  start.  The  hatter 
started  with  $15.00  of  cash  and  3  hats  worth  $4  each,  or 
$27.00;  he  ended  with  $12  of  cash  and  3  pairs  of  shoes 
worth  $15,  which  equal  $27.00.  The  shoemaker  started 
with  $15  of  cash  and  3  pairs  of  shoes  worth  $15;  he  ended 
with  $18  of  cash  and  3  hats  worth  $12,  which  make  $30.00. 
In  other  words,  the  shoemaker  started  with  more  than  the 
hatter,  and  ended  with  more.  The  difference  between  the 
assumed  value  of  three  pairs  of  shoes  and  three  hats  was 
$3.00,  and  as  the  hats  and  the  shoes  were  exchanged,  the 
hatter  paid  to  the  shoemaker  $3.00  to  settle  the  difference, 
but  the  hatter  lost  nothing  by  such  exchange;  neither  did 
the  shoemaker  gain  anything,  except  the  advantage  of 
getting  what  he  wanted  by  exchanging  one  sort  of  wealth 
for  another.  I  mean  no  more  than  that  trade  can  result 
in  nothing  but  the  substitution  of  one  value  for  another 
equal  value.  The  prosperity  of  every  producer  of  goods 
depends  not  upon  something  derived  from  another,  but 
upon  something  produced  by  himself.  As  between  two 
hatters,  he  who  produces  twice  as  many  hats  in  a  given 
time  as  the  other,  will  have  twice  as  many  to  exchange  for 

30- 


what  he  needs.  His  income  cannot  be  greater  than  his 
outgo,  nor  less.  Trade  does  not  enrich  a  producer  of 
goods:  he  is  enriched  by  his  own  industry  and  zeal  and 
intelligence  and  in  proportion  as  these  faculties  are  em- 
ployed in  production. 

Up  to  this  point  the  problem  has  been  simple.  We 
now  reach  a  new  perplexity  which  must  be  disposed  of. 
In  the  case  put  the  shoemaker  produced  $3.  more  of  what 
we  call  value  than  the  hatter.  This  excess  value  may  be 
due  to  either  of  two  causes:  the  shoemaker  may  work 
harder,  or  he  may  produce  an  article  for  which  there  is  a 
less  supply.  In  the  latter  event  his  greater  prosperity 
seems  to  be  due  not  to  his  own  industry,  but  to  another's 
need.  Assuming  this  to  be  true,  is  his  prosperity  unfair, 
does  it  involve  an  injury  to  the  consumer?  Obviously 
not.  To  make  what  no  man  needs  is  to  serve  nobody:  to 
add  to  an  abundant  supply  other  articles  of  the  same 
sort  is  to  render  an  unneeded  service:  to  supply  what  is 
necessary  and  lacking  is  to  render  the  best  sort  of  service 
and  to  deserve  a  corresponding  reward.  The  value  of  every 
article  depends  upon  the  demand  for  it.  If  I  create  a 
value  for  which  there  is  a  great  demand,  I  create  a  greater 
value  than  he  who  produces  that  which  is  less  needed. 
I  do  more  good  than  he,  and  my  prosperity  represents  not 
another's  loss  but  the  good  I  do  him.  I  am  still  paid 
according  to  my  service.  It  is  never  true  that  profits  are 
derived  from  trade  by  one  man  at  the  expense  of  another. 
Each  gets  what  he  gives,  and  gives  what  he  gets;  and  the 
word  "profiteer"  contains  in  a  general  sense  a  general 
delusion. 

I  have  been  discussing  barter  only,  as  that  sort  of  selling 
and  buying  which  results  in  immediate  exchange,  in  order 
to  show  what  it  involves  and  what  good  results  from  it. 

31 


Trade  however  is  never  so  simple  as  in  the  cases  assumed. 
Where  labor  or  industry  is  minutely  divided  as  at  present, 
one  producer  of  goods  rarely  deals  directly  with  another. 
All  goods  are  marketed  by  intervening  instrumentalities 
which  serve  not  to  bring  producer  and  consumer  together, 
but  to  enable  them  to  exchange  goods  without  such  con- 
tact. The  most  important  of  these  instrumentalities  is 
money. 

Money  is  a  commodity  precisely  in  the  sense  that  wheat 
is  a  commodity,  but  it  differs  from  every  other  commodity 
in  one  important  particular,  namely:  the  owner  can  ex- 
change money  for  any  commodity  whatever;  every  other 
commodity  is  exchangeable  for  money  only.  For  this 
reason  we  first  barter  what  we  make  for  money  and  then 
barter  the  money  for  what  we  need.  It  is  obvious  that  by 
such  mediate  barter,  which  we  call  selling  and  buying,  we 
neither  add  to  nor  diminish  the  value  of  what  we  give 
and  get.  We  exchange  one  value  called  goods  for  another 
equal  value  called  money,  and  then  exchange  the  money 
for  another  equal  value  in  goods  of  another  sort.  As 
however  money  is  apt  to  confuse  commercial  transactions, 
I  shall  attempt  to  ignore  it  wherever  possible. 

Money  does  not  avoid  all  the  difficulties  of  trade.  The 
producer  of  goods  must  still  find  some  one  who  needs  them. 
As  a  rule  he  is  too  busy  to  search  out  the  consumer,  and 
this  task  is  entrusted  to  one  who  makes  a  business  of 
trade.  The  merchant  buys  from  the  producer  and  sells  to 
the  consumer.  As  his  service  is  a  necessary  one,  he  makes 
what  is  called  a  profit  by  performing  it. 

Let  me  assume  that  the  hatter  and  the  shoemaker  are 
unknown  to  each  other  and  conduct  their  trading  through 
a  merchant.  The  hatter  sells  his  hats  to  the  merchant, 
and  the  merchant  sells  one  hat  to  the  shoemaker,  another 

32 


to  the  blacksmith,  etc.,  at  a  profit.  At  the  same  time  the 
shoemaker  sells  his  shoes  to  the  merchant  and  the  merchant 
sells  a  pair  to  the  hatter,  etc.,  at  a  profit.  Whence  come 
these  profits,  who  pays  them?  Does  the  merchant  get  rich 
at  the  expense  of  others?  His  profits  are  paid  by  the 
hatter  and  the  shoemaker  in  one  sense,  but  they  represent 
a  service  to  each  and  not  an  injury.  The  need  of  the 
shoemaker  was  a  hat  and  the  need  of  the  hatter  a  pair 
of  shoes.  Neither  was  able  to  get  what  he  wanted  without 
the  intervention  of  another.  The  merchant  is  helpful  to 
both  and  is  paid  by  each  because  he  helps  each.  Both 
are  better  and  not  worse  off  as  the  result  of  his  service. 

At  this  point  we  are  again  confronted  with  a  fact  to 
which  I  have  already  referred:  one  merchant  makes  a 
greater  profit  than  another.  The  explanation  is  identical 
with  that  already  offered.  The  merchant  who  sells  in  a 
cheap  market,  performs  a  less  service  than  he  who  sells  in  a 
dear  market.  To  transfer  goods  from  a  market  where  they 
are  little  needed  to  one  where  they  are  greatly  needed  is 
to  deserve  a  corresponding  reward,  and  this  reward  is 
proportionate  not  to  the  harm  but  to  the  good  done. 

Such  is  the  service  rendered  by  the  merchant.  What 
of  the  banker?  Trade  cannot  be  conducted  without 
money,  and  money  is  sometimes  hard  to  get.  The  great 
merchant  rarely  has  enough  of  his  own  to  conduct  his 
business.  He  must  therefore  borrow  from  one  who  has 
money.  The  banker  is  the  lender.  To  induce  him  to 
lend,  the  merchant  must  pay  part  of  his  profit  to  the 
banker,  and  this  part  is  called  usury  or  use  money.  To 
the  imagination  nothing  is  more  odious  than  usury.  What 
service  does  the  banker  perform?  What  he  lends  does 
not  belong  to  him.  People  who  have  no  use  for  it  deposit 
money  in  the  bank,  and  the  banker,  who  cannot  use  it, 

88 


lends  to  another.  Is  not  his  charge  unjust;  does  he  not 
get  rich  without  service;  does  he  contribute  anything  to 
the  goods  of  the  world;  does  he  distribute  them? 

These  questions  also  should  be  answered  so  clearly  as 
to  leave  no  doubt.  Usury  has  always  been  hateful.  Christ 
drove  the  bankers  from  the  temple.  For  many  centuries 
the  Church  forbade  usury.  By  the  common  opinion  of 
man  it  has  been  deemed  hateful  and  hurtful.  "The  usurer 
is  the  great  Sabbath  breaker;  his  plow  goeth  on  Sunday." 
The  Church  was  right.  During  many  centuries  usury  was 
an  unmixed  evil.  Men  in  distress  borrowed  so  much, 
spent  it  and  were  then  required  to  pay  more.  Today 
however  usury  is  quite  a  different  thing.  The  borrower 
gains  by  the  use  of  money  and  shares  his  gain  with  the 
lender.  The  service  rendered  by  the  banker  is  very  great. 
He  must  safeguard  the  funds  left  with  him,  honor  all 
checks  and  keep  accounts.  If  he  lends  trust  funds,  he 
lends  at  his  own  risk.  He  must  know  not  only  the  character 
of  the  borrower  and  his  resources,  but  understand  the 
business  he  is  engaged  in.  If  he  lends  for  an  unprofitable 
enterprise,  he  will  lose  his  advance.  He  enables  the 
borrower  to  do  what  he  would  otherwise  be  unable  to  do. 
If  I,  being  a  merchant  and  lacking  money,  borrow  the 
money,  buy  goods,  move  them  to  a  good  market  and  sell 
them  at  a  profit,  I  can  pay  my  debt  and  interest  and 
have  something  left  for  myself.  The  banker  by  becoming 
a  partner  in  my  service,  earns  and  deserves  part  of  the 
fruits  of  that  service.  He  does  not  hurt  me,  he  helps  me; 
and  I  in  turn  help  both  the  producer  and  consumer  of 
goods  by  enabling  them  to  exchange  what  they  make  for 
what  they  need.  The  maker  of  goods,  the  merchant  who 
markets  them  and  the  banker  who  helps  the  merchant, 
share  alike  in  the  fruits  of  a  divided  industry. 

34 


In  this  instance  also  there  is  a  difference  between 
individuals:  one  banker  makes  more  than  another,  but  if 
he  does,  it  is  because  he  renders  a  better  or  more  needed 
service.  He  who  lends  a  merchant  money  to  buy  corn  in 
New  England  for  sale  in  Kansas  will  not  get  so  rich  as  he 
who  lends  money  to  buy  corn  in  Kansas  for  sale  in  New 
England.  No  banker  can  thrive  who  does  an  unuseful 
thing.  If  he  does  or  helps  to  do  a  useful  thing,  he  earns 
the  fruits  of  his  service,  and  his  profit  is  derived  not  from 
hurting  but  from  helping  another. 

The  uneven  distribution  of  wealth  is  due  to  salutary 
and  useful  laws.  It  is  necessary  for  the  welfare  of  society 
that  men  should  have  an  inducement  to  do  good  and  not 
to  do  evil:  to  do  that  which  helps  along  rather  than  that 
which  retards  progress.  That  welfare  depends  upon  the 
plentiful  production  of  the  right  articles  at  least  cost,  and 
their  just  distribution.  Society  helps  itself  by  rewarding 
men  proportionately  to  the  good  they  do;  and  as  one 
man  does  more  good  than  another,  it  lets  him  become 
richer  than  another.  The  increase  in  one  man's  riches 
cannot  deprive  another  of  the  fruits  of  his  own  industry. 
We  get  rich  at  the  same  time.  Every  man's  zeal  helps  all 
the  others.  There  is  no  limit  to  the  amount  of  wealth  that 
can  be  produced.  What  one  produces,  he  gets.  The 
prosperity  of  one  cannot  diminish  the  goods  of  another. 

The  accumulation  of  wealth  by  individuals  is  indis- 
pensable to  the  community.  Accumulated  or  unconsumed 
wealth  is  capital,  and  capital,  as  I  have  already  explained, 
is  most  necessary  to  industry.  It  affords  the  tools  to  work 
with,  the  machinery,  the  factory,  the  raw  material  and 
wages  pending  the  completion  and  sale  of  goods.  It  does 
vastly  more  good  than  it  earns  in  the  way  of  interest. 
If  I  lend  a  reaper  to  a  farmer,  charging  for  its  use,  I  save 

35 


him  an  immense  amount  of  labor  and  increase  his  profit 
on  his  crop.  If  I  lend  a  machine  to  a  workman,  I  increase 
his  output  five  or  tenfold  and  receive  but  a  small  part 
of  such  increase  for  my  help. 

The  appropriation  of  capital  by  individuals  cannot 
tend  to  cripple  industry,  for  it  is  worth  nothing  to  the 
capitalist  unless  he  employs  it  for  the  general  good.  If 
there  are  many  capitalists,  and  capital  is  abundant,  one 
must  compete  with  another  in  his  charges,  and  business 
always  goes  to  him  who  will  lend  for  least.  The  right  use 
of  capital  requires  very  high  intelligence:  that  sort  of 
intelligence  which  is  requisite  for  a  banker.  To  put  capital 
into  a  foolish  enterprise  is  to  hurt  at  once  the  capitalist 
and  the  community.  It  cannot  be  accumulated  without 
service  nor  preserved  without  service.  The  man  who 
hoards  money  is  called  a  miser.  He  is  miserable  because 
he  serves  neither  himself  nor  others.  An  incompetent 
man  who  employs  it  cannot  retain  it.  It  is  a  maxim  of 
experience  that  there  are  but  three  generations  between 
shirt-sleeves  and  shirt-sleeves. 

Private  property  cannot  therefore  of  itself  be  an  evil. 
It  enables  the  possessor  to  live  in  comfort  and  confidence 
and  injures  no  man — unless  its  possession  gives  one  man 
an  unfair  advantage  over  his  fellows  in  that  relentless 
competition  which  I  have  described.  Without  capital 
labor  lacks  two-thirds  of  its  capacity.  A  man  with  a 
machine  can  outstrip  it  in  the  race.  Have  we  destroyed 
the  equal  opportunity  to  which  we  should  at  least  aspire, 
by  permitting  one  man  to  own  the  earth  and  appropriate 
all  its  fruits?  How  can  the  newcomer  live:  what  is  left 
for  him? 

A  ready  answer  to  this  question  may  be  found  in  what 
everybody  observes:  the  man  with  property  is  continually 


losing  it  and  the  man  who  lacks  it  is  ever  acquiring  it. 
The  country  boy  who  abandons  the  farm  and  comes  to 
the  city  thrives  because  he  finds  there  better  opportunities.^ 

The  economic  answer  rests  upon  the  principle  that 
neither  personal  nor  real  property  can  be  profitable  to 
the  owner  unless  it  be  made  of  service  to  the  community. 
We  sow  crops  to  sell  and  thereby  feed  the  community. 
Property  is  like  labor  in  the  respect  that  it  is  the  servant 
and  not  the  master  of  society.  The  man  who  owns  it, 
willing  or  not,  must  use  all  that  part  which  is  not  necessary 
for  his  own  need  for  the  good  of  others.  Morever,  property 
is  not  more  necessary  for  labor  than  labor  is  for  property. 
Each  is  dependent  upon  the  other  and  the  mastery  is 
with  neither. 

The  fundamental  error  of  socialism  lies  in  the  assump- 
tion that  one  man  will  sow  what  another  may  reap.  Ex- 
perience is  wiser.  We  allow  private  property  in  land  and 
goods  because  we  know  that  only  in  such  fashion  can  they 
be  made  available  for  the  general  good.  The  owner  who 
seeks  his  own  welfare  must  do  good  to  others  in  order  to 
accomplish  his  object. 

I  have  entered  upon  all  of  these  considerations  to 
show  that  the  free  and  spontaneous  organization  of  industry 
at  which  we  have  arrived  after  centuries  of  experiment  is 
upon  the  whole  an  excellent  and  beneficial  system;  as  just 
to  those  engaged  in  it  as  to  those  who  depend  upon  it. 
I  have  tried  to  explain  why  labor  became  specialized,  what 
results  followed,  how  its  increased  efficiency  enured  to 
the  advantage  of  the  laborer  and  the  community,  and  in 
what  manner  those  advantages  were  distributed.  I  have 
tried  also  to  prove  that  the  prosperity  of  every  class 
engaged  either  in  the  production  or  distribution  of  wealth 
must  be  the  direct  and  necessary  result  of  the  service  it 

37 


has  performed:  to  justify  private  enrichment  by  the  use- 
fulness of  capital:  and  to  show  that  there  can  never  be 
too  little  wealth  to  go  round  because  one  man  accumulates 
more  than  he  needs. 

I  cannot  conclude  without  mentioning  the  causes  of 
the  prevailing  discontent  which  we  are  apt  to  overlook. 
Men  assume,  why  I  cannot  tell,  that  wealth  consists  of 
money.  Nothing  could  be  farther  from  the  truth.  The 
gold  of  the  United  States  constitutes  perhaps  one-fiftieth 
of  its  wealth.  Money  is  wealth,  but  it  is  wealth  in  the  same 
sense  that  a  hoe  is  wealth.  It  is  a  tool  of  exchange,  a  con- 
venient measure,  an  instrument  of  trade.  It  contains  a 
definite  and  unfluctuating  amount  of  what  we  call  value, 
with  which  we  measure  other  values;  but  wheat  and  iron 
and  every  other  commodity  also  contain  value,  and  they 
and  other  commodities  constitute  ninety-eight  per  cent 
of  the  wealth  of  the  community  as  against  the  two  per 
cent  contained  by  money.  It  is  true  that  if  one  man  locks 
up  money,  he  will  diminish  the  general  stock,  as  gold 
cannot  be  produced  as  wheat  is  produced,  But  it  is  not 
true  that  an  increase  in  one  man's  general  wealth  dim- 
inishes the  wealth  of  another.  Every  one  is  free  to  pro- 
duce as  much  as  he  can,  and  what  he  produces  for  himself 
does  not  affect  what  another  produces  for  himself. 

Our  industrial  freedom  is  justified  by  its  utility.  We 
are  free,  but  free  only  to  serve.  If  we  fail  to  serve  we  are 
punished  relentlessly;  if  we  serve,  we  are  rewarded.  What 
we  save  is  useful  to  ourselves  and  to  others.  Wealth  is 
unequally  divided  because  all  men  are  not  alike.  Some 
know  what  to  do  and  how  to  do  it  and  are  willing  to  work. 
Others  are  ignorant  or  incompetent  or  idle;  and  each  reaps 
what  he  sows. 

A  slavish  system  would  be  altogether  less  profitable  to 


the  individual  and  to  the  community.  If  we  say  "to  each 
one  according  to  his  need  and  from  each  according  to  his 
power,"  we  make  the  bad  to  be  tyrant  over  the  good, 
diminish  the  product  of  industry  and  impair  the  prosperity 
of  all.  What  I  will  not  do  freely  for  myself  I  cannot  be 
compelled  to  do  efficiently  for  a  master. 

If  we  use  these  general  considerations  to  test  the  utility 
of  the  various  expedients  which  are  from  time  to  time  tried 
for  the  redress  of  grievances,  we  shall  observe  that  most 
of  them  are  not  only  hurtful  to  the  promoters  but  to 
everybody  else. 

The  labor  union,  while  it  has  many  worthy  objects, 
commits  a  grievous  blunder  when  it  attempts  to  curtail 
production  in  order  to  provide  places  for  more  men.  Let 
us  assume  that  a  proper  output  of  shoes  per  day  is  five 
pairs:  to  compel  a  man  to  make  no  more  than  three  is  to 
reduce  his  wages;  for  wages,  as  we  have  seen,  depend  upon 
the  amount  of  wealth  produced.  Trade  adds  nothing  to 
the  value  of  such  product.  Restricted  output  involves  the 
inversion  of  the  present  industrial  system.  We  now  divide 
labor  in  order  that  it  may  produce  more.  If  after  dividing 
it  we  produce  less,  the  advantages  of  specialization  will 
be  impaired  or  lost.  A  restricted  production  cannot  be 
good  for  the  community  unless  to  lack  what  we  need  be  a 
blessing. 

The  laborer  is  deceived  by  the  apparent  results  of  re- 
stricting output.  He  observes  that  more  men  are  required 
to  do  the  same  amount  of  work  and  thinks  that  therefore 
the  laboring  class  is  better  off.  This  delusion  is  as  old 
as  ignorance.  The  Chinese  still  cherish  it  and  earn 
about  seven  cents  a  day.  Wages  are  paid  in  money.  If 
they  seem  high,  men  are  satisfied.  Yet  they  may  seem 
high  and  be  low.  Wages  are  earned  by  labor  and  paid  in 


the  fruits  of  labor.  If  labor  be  efficient  and  there  is  much 
to  go  round,  wages  will  be  high.  If  we  produce  little,  we 
can  get  little.  Money  wages  are  always  deceptive.  To 
receive  $10  a  day  in  money  and  be  able  to  buy  for  it  but 
$2  in  value,  is  not  to  prosper.  Cheap  goods  mean  high 
wages,  dear  goods  low  wages.  If  all  labor  shall  zealously 
produce  as  much  as  possible  at  least  cost,  the  exchange 
value  of  labor  measured  in  goods  will  be  high.  If  all 
scamp  their  jobs  and  make  as  little  as  possible,  the  exchange 
value  of  labor  measured  in  goods  will  be  low,  however  high 
the  money  wages  may  seem.  The  common  stock  of  goods 
being  large  or  small  as  we  make  it,  so  shall  we  have  much 
or  little  as  we  choose.  Something  can  never  be  got  for 
nothing;  more  cannot  be  got  out  of  less,  even  through  the 
intervention  of  money. 

All  efforts  to  raise  wages  in  disregard  of  economic  law 
must  result  in  failure.  An  industry  can  pay  so  much  and 
no  more.  If  it  earns  so  much  and  wages  demand  the  whole, 
the  employer  will  not  work  and  the  capitalist  will  stop 
lending.  The  most  effective  check  upon  abnormal  wages 
is  that  which  results  from  the  injury  they  attempt  to 
inflict  upon  the  community.  Earned  wages  represent  a 
service  rendered;  unearned  wages,  a  wrong  done.  No 
man  can  compel  another  to  pay  what  that  other  cannot 
afford.  If  I  get  for  my  labor  $5.00  a  day,  I  cannot  pay 
another  $10.00  a  day.  Rising  prices  kill  trade,  and  ab- 
normal wages  tend  to  high  prices.  A  boom  always  collapses, 
and  wages  must  ultimately  conform  to  the  economic  law. 

The  Union  seems  unable  to  understand  the  mutual 
dependence  of  all  classes  engaged  in  co-operative  industry. 
The  man  who  makes  shoes  will  not  remember  that  others 
are  engaged  in  making  hats,  and  that  neither  can  gain  an 
unfair  advantage  without  hurting  him  on  whom  his  own 

40 


prosperity  depends.  The  hatter  needs  shoes,  the  shoe- 
maker hats;  and  each  must  deal  fairly  with  the  other,  or 
not  at  all.  Economic  selfishness  which  seeks  the  rewards 
of  service  is  quite  a  different  thing  from  that  disorderly 
selfishness  which  attempts  spoliation.  The  Union  may 
secure  an  immediate  advantage,  but  such  advantage  will 
be  temporary. 

The  employer  is  sometimes  as  foolish  as  the  laborer. 
He  too  tries  by  restricting  output  to  control  prices,  or  to 
artificially  maintain  them  by  pools  and  conspiracies;  but 
it  is  as  impossible  for  him  to  succeed  as  for  the  laborer, 
and  for  the  same  reason.  The  community  which  earns  so 
much  can  pay  so  much  and  no  more.  What  is  called  over- 
production deceives  us.  It  does  not  mean  that  too  many 
goods  have  been  produced  but  that  the  public  cannot  pay 
the  price  demanded.  A  manufacturer  may  make  too 
many  $5  hats,  but  he  cannot  make  too  many  hats  while 
men  need  them  and  will  pay  $2  for  them. 

The  general  propensity  of  every  industry  and  of  all 
engaged  in  it  to  regard  its  welfare  as  something  special 
and  apart  from  that  of  others  has  defeated  and  perhaps 
always  will  defeat  the  plainest  doctrine  of  political  economy 
and  lesson  of  experience.  Laws  are  still  in  force  which 
pretend  to  satisfy  this  universal  craving  They  are  called 
ingeniously  "protective"  laws.  They  protect  A  against  B 
and  B  against  A,  and  both  are  satisfied. 

Perhaps  the  most  interesting  manifestation  of  this 
delusion  is  to  be  found  in  the  opinion  of  the  business  world 
with  respect  to  foreigners  and  to  what  is  called  the  balance 
of  international  trade.  People  say  the  balance  is  "favor- 
able" when  more  goods  are  sent  out  than  are  brought  in. 
What  nonsense!  What  is  trade?  Is  it  not  the  exchange  of 
goods  for  goods?  Is  the  balance  "favorable"  when  more  is 

41 


given  for  less?  The  truth  is,  the  balance  must  be  even:  it 
cannot  be  either  favorable  or  unfavorable.  I  do  not  deny 
that  for  a  century  the  United  States  has  sent  more  goods 
to  England  than  it  has  received  from  England;  but  is  the 
balance  therefore  uneven?  Certainly  not.  We  have  been 
for  a  century  a  debtor  nation:  we  have  borrowed  England's 
capital  to  help  our  industries.  We  therefore  ship  her  goods 
for  goods  and  also  goods  for  the  use  of  her  capital.  The 
balance  has  always  been  even. 

The  vague  notion  back  of  the  words  "favorable"  and 
"unfavorable"  is  an  apprehension  inherited  from  our 
ancestors  that  if  we  buy  more  than  we  sell  we  shall  lose 
money.  One  simple  fact  should  expel  this  delusion.  Not- 
withstanding that  our  exports  to  England  have  exceeded 
our  imports  from  England  by  a  great  sum  during  a  whole 
century,  England  has  lost  no  money  by  this  "adverse" 
balance:  she  has,  on  the  contrary,  during  the  whole  of 
that  time  been  the  money  market  of  the  world.  How  can 
this  fact  be  reconciled  with  the  prevailing  delusion?  Eng- 
land has  become  and  remained  rich  because  her  income 
has  been  greater  than  her  outgo — not  because  it  has  been 
less.  The  United  States  has  also  been  prosperous  not 
because  her  outgo  has  been  greater  than  her  income,  but 
because  the  capital  borrowed  has  been  employed  in  in- 
dustry and  we  have  not  only  paid  for  its  use  but  profited 
by  its  use. 

It  is  true  that  under  certain  circumstances  an  adverse 
balance  of  trade  must  be  corrected  by  the  export  of  money; 
but  what  is  money  for?  If  we  send  it  out,  it  is  because  we 
wish  something  we  purchase  with  it.  Does  disaster  there- 
fore threaten  us?  No,  because  as  soon  as  the  export  of 
specie  tends  to  deprive  a  country  of  a  necessary  medium  of 
exchange,  the  value  of  money  for  domestic  exchange  must 

42 


rise;  that  is,  its  purchasing  power  in  the  exporting  country 
must  increase,  and  the  direct  and  necessary  result  of  such 
advance  will  be  to  draw  money  from  abroad.  Money  goes 
to  its  best  market  as  instinctively  as  wheat  or  any  other 
commodity,  and  it  is  incredible  that  it  shall  long  be  lacking 
in  a  commercial  country  where  it  will  buy  most. 

One  other  obsession  which  works  great  mischief  in  the 
world  deserves  consideration.  The  poor  man  is  pleased 
when  heavy  taxes  are  imposed  upon  the  rich;  and  the 
whole  art  of  government  now  consists  in  predatory  taxa- 
tion. What  is  a  tax;  who  pays  it?  It  is  a  toll  levied  upon 
industry,  and  it  is  paid  by  labor.  Although  collected  in 
what  is  called  money,  yet  the  money  is  immediately  spent 
for  goods  and  the  goods  so  bought  are  withdrawn  from  the 
general  stock  and  consumed  by  the  tax-gatherer.  It  can- 
not be  advantageous  for  the  poorer  members  of  the  com- 
munity that  many  goods  should  be  consumed  by  those 
who  produce  nothing.  The  hive  may  support  so  many 
drones,  but  it  cannot  be  a  blessing  to  the  worker  bee  to 
endure  such  a  burden.  If  we  assume  that  one  half  of  all 
the  wealth  produced  by  everybody  is  appropriated  by 
the  State,  is  everybody  or  anybody  better  or  worse  off  as 
the  result  of  such  spoliation?  When  we  tax,  we  appropriate 
goods.  Goods  must  be  produced  by  labor.  Who  then 
pays  the  tax  ultimately?  It  may  fall  first  upon  a  bank 
account,  but  in  the  end  it  falls  upon  the  producers  of 
wealth. 

Money  may  or  may  not  be  the  root  of  all  evil,  but  it  is 
certainly  the  root  of  much  bad  thinking.  From  a  false 
notion  of  its  character  and  function  flow  many  delusions: 
as  that  "protection"  protects;  that  trade  can  have  an  un- 
favorable balance;  that  the  seller  makes  something  out  of 
the  buyer;  or  that  one  man's  riches  cause  another  man's 

43 


poverty; — and  it  is  hard  to  be  rid  of  these  obsessions.  We 
must  remember  constantly  that  industry  is  divided  because 
a  specialized  labor  is  most  productive;  that  the  benefits 
of  specialization  cannot  be  realized  save  by  trade;  that 
trade  is  good  for  the  buyer  as  well  as  the  seller;  that  it 
involves  the  exchange  of  goods  for  goods,  or  services  for 
services;  that  what  interferes  with  trade  impairs  prosperity; 
that  money  is  a  convenient  medium  for  the  exchange  of 
goods  and  nothing  more;  that  what  we  carry  into  trade  we 
get  out  of  trade;  and  that  the  prosperity  of  all  classes 
depends  upon  the  industry  of  all  classes  and  cannot  be 
otherwise  realized. 

Private  property  is  not  the  fruit  of  wrongdoing,  but  of 
service  and  self-denial.  Its  accumulation  hurts  no  one: 
it  helps  every  one.  It  provides  comforts  and  luxuries, 
which  all  men  should  wish  to  have.  It  provides  also  the 
capital  without  which  industry  would  be  reduced  to 
penury.  The  hate  which  it  inspires  is  undeserved. 

I  fully  realize  that  this  brief  discussion  of  a  great  sub- 
ject cannot  convince  the  unthcughtful  man,  but  it  may 
be  useful  to  those  who  seek  to  understand  what  is  con- 
fused. There  are  bad  men  in  industry,  captains  whom  we 
may  justly  call  buccaneers,  and  these  I  have  not  discussed. 
I  have  confined  myself  to  the  normal  sort  of  industry  and 
not  to  thieving,  because  the  latter  is  too  fugitive  and 
various  for  discussion.  There  are  degrees  of  selfishness. 
That  sort  which  I  have  treated  is  the  sort  which  is  common 
to  all  men,  and  I  have  tried  to  make  it  respectable  by 
showing  the  good  it  does  and  must  do  in  order  that  it 
may  prosper. 

In  conclusion  I  venture  to  reiterate  the  propositions 
which  I  have  endeavored  to  establish. 

44 


The  object  of  industry  is  to  produce  abundantly  and 
cheaply  the  goods  of  which  society  has  need. 

In  the  accomplishment  of  this  object  each  individual 
may  produce  all  of  his  own  goods,  or  specialize  his  labor 
and  produce  particular  goods  to  be  exchanged  for  what 
he  needs. 

Of  these  two  methods  specialization  is  better  because  it 
conduces  to  skill  and  efficiency  and  therefore  to  greater 
production. 

The  organization  of  industry  may  be  either  arbitrary 
or  free;  the  State  may  direct  labor  and  distribute  goods 
arbitrarily,  or  each  individual  may  be  permitted  to  do 
what  he  likes  and  trade  where  he  likes. 

The  free  system  is  preferable  because  selfishness  is  a 
better  spur  to  industry  than  altruism;  freedom  is  better 
than  slavery,  and  private  intelligence  is  more  trustworthy 
than  official  supervision. 

The  free  system  cannot  result  in  injury  to  anybody, 
because  it  is  controlled  by  economic  laws  which  none  may 
disregard.  Under  it,  selfishness  can  thrive  only  by  doing 
good.  The  man  who  makes  in  order  to  sell  must  make 
what  someone  else  needs  and  offer  it  on  satisfactory  terms 
for  what  he  himself  needs.  The  selfishness  of  all  guides 
corrects  and  restrains  the  selfishness  of  each. 

Where  industry  is  divided,  it  is  advantageous  to  all 
individuals  that  all  goods  should  be  abundant  and  not 
scarce;  for  the  purchasing  power  of  special  goods  depends 
upon  the  abundance  of  all  other  goods,  that  is  upon  the 
price  which  must  be  paid  for  them. 

Trade,  which  is  indispensable  to  a  divided  industry,  is 
beneficial  to  all  engaged  in  it,  although  each  gets  from 
trade  what  he  carries  into  it  and  no  more.  All  share  in 

45 


the  fruits  of  a  divided  labor,  but  none  gets  any  advantage 
at  the  cost  of  the  other.  Trade  should  therefore  be  free. 

The  worst  enemy  of  society  is  he  who  strives  to  make 
goods  scarce  and  high  or  to  curtail  the  markets  for  them. 

Private  property  is  property  produced  by  work  and 
accumulated  by  self-denial.  It  is  useful  to  the  owner  only 
when  employed  in  aid  of  industry.  It  is  the  source  of  the 
capital,  or  tools,  machinery,  etc.,  which  are  indispensable 
to  industry.  Land  is  given  to  individuals  in  order  that  it 
may  be  made  productive. 

The  prosperity  of  one  individual  cannot  impair  the 
prosperity  of  another,  for  a  man  can  become  rich  only  by 
helping  and  not  by  hurting  others;  and  his  enrichment 
cannot  diminish  their  riches. 

The  free  industrial  system  under  which  we  live  is  ex- 
cellent because  it  tends  to  the  production  of  much  wealth; 
to  the  distribution  of  such  wealth  to  each  according  to  his 
contribution;  to  zealous  industry;  to  fair  trade;  and  to 
mutual  service. 

Political  economy  is  in  reality  the  science  of  service. 


46 


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